NZ vs. Australia: Why their carbon tax is better than ours: The long version

New Zealand is tracking full pace for catastrophic runaway climate change. The emissions trading scheme (ETS) is New Zealand’s key tool for reducing emissions and enhancing carbon sequestration, the two critical parts of our climate change response. Everyone agrees the ETS isn’t working. Our emissions aren’t falling fast enough, pines are being planted all over the country, and native forest restoration remains neglected.

Carbon credits and the ETS are highly contentious, its one of those topics where everyone has an opinion. I am confident there is a pragmatic, simple version of the ETS that can both give us rapid emissions reductions, restore native ecosystems across New Zealand and provide valuable income to farmers.

The single biggest thing that motivates emissions reductions is when a business is mandated to pay for their emissions. As soon as cutting emissions becomes cheaper than paying for emissions, a company will cut their emissions. The ETS currently covers the majority of carbon emissions in the economy, it is important at least 90% of emissions are covered. I agree with many others that different gases, such as methane and nitrous oxide should be priced separately, so my suggestions only apply to carbon dioxide.

Simply, we need a price on carbon emissions that is high enough that it motivates emissions reductions of at least 7% per year. There are then two option for what we do with this price. First we could use it to fund more emissions reductions or carbon removals (effectively a carbon tax). Second we could pair each tonne of emissions with a tonne of carbon removal, and tightly control the supply of sequestration to ensure the price is high enough to motivate emissions reductions.

I am a strong advocate for the second approach.  If we split emissions from carbon removal, then we would end up with a carbon tax generating funds for future restoration, rather than an incentive that rewards restoration that has already happened. I believe it will be more efficient to pay for the outcome (e.g. restoration of natives) and let the market decide how best to achieve that restoration, rather than the government funding restoration to achieve a future outcome. 

In practice this requires us to cut the free allocation of units in the ETS currently and exclude permanent exotics from the ETS which as many have written is ecologically fraudulent. Alongside this we need to include new forms of scientifically robust carbon removals like wetlands, blue carbon, soil carbon and biochar.

New Zealand is unique globally that we have a carbon credit market where the carbon credits can’t be used to cancel against a tonne of emissions for an organisation. Strangely, while the government claims this carbon sequestration for New Zealand’s global climate change contributions, a business can’t. This is why I am suggesting all carbon credits in the reformed ETS should meet voluntary carbon credit guidelines, the same as the Australian system.

This new version of the ETS I suggest should look very similar to the new Australian system. With one key difference, the Australian system require a massive paperwork burden, which is costly financially and time wise. This has happened to the point that the Australian blue carbon method for example has had virtually no uptake because the costs of compliance for a blue carbon project far outweigh the returns. We must ensure we have a pragmatic way to recognise carbon removal that does mean a significant percentage of funds it getting spent on auditing, consulting and verification, money needs to go to work on the ground.   

I suggest we pair 100% of society carbon emissions with high quality, recent carbon removal from indigenous ecosystems, with a price high enough that motivates businesses to cut emissions by 7%+ per year. However the sad reality is we need to also remove gigatonnes of historical carbon emissions. This can be done by a percentage fee from all carbon credits in the emissions trading scheme going to fund additional carbon removals. Simultaneously, we need to set targets for the ETS to remove more than 100% of society emissions after 2040.

There is no doubt this price of carbon will be passed onto consumers. However the scale of the collective climate response that is required demands nothing less that deep emissions cuts and billions in payments from emitters to remove carbon via ecosystem restoration. Under this scenario, low carbon innovations will flourish.

People often say carbon crediting (or offsetting, which is a term I prefer not to use), is an excuse for emitters to buy their way out of actually cutting emissions, which will be a criticism of this approach. However it’s very simple, if the cost of cutting emissions is less than the price of purchasing a tonne of high quality carbon removal the business will cut emissions. So we need to make sure the price of credits is high enough and the credits are of sufficient quality.

So much is at stake for the future of our forests and our planet, and while it doesn’t appear anything will happen pre-election, I am confident this is the solution New Zealand needs.